JPMorgan Beats Expectations Amid a Mountain Of Legal Costs

Core earnings come in ahead of estimates

JPMorgan Beats Expectations Amid a Mountain Of Legal Costs

JPMorgan Chase’s (JPM) kicked off third-quarter earnings season for big financials this morning beating Wall Street analysts expectations.

JPMorgan reported a net loss of 17 cent per share, but excluding non-recurring items (litigation expense and reserve losses), JPMorgan’s core businesses earned EPS of $1.42.

Third quarter net revenue came in at $23.9 billion.

On average, analysts were expecting the bank to post adjusted earnings per share of $1.28 and revenue of $24 billion, according to data compiled by Bloomberg.

The bank reported a mountain of legal costs of $7.2 billion (that’s after-tax).

Those legal expenses have caused the bank to report its first quarterly loss since Jamie Dimon became CEO.

JPMorgan’s stock was trading up more than 1.5% in the pre-market.

Here’s an excerpt from the release (emphasis ours):

JPMorgan Chase Reports Third-Quarter 2013 Net Loss of $0.4 Billion, or $(0.17) Per Share, on Revenue1 of $23.9 Billion

THIRD-QUARTER 2013 NET INCOME OF $5.8 BILLION, OR $1.42 PER SHARE, EXCLUDING LITIGATION EXPENSE AND RESERVE RELEASES1

SUPPORTED CONSUMERS, BUSINESSES AND COMMUNITIES

  • Strong underlying performance across our businesses2
    Consumer & Community Banking deposits were up 10%; client investment assets were a record $179.0 billion, up 16%; credit card sales volume1 was a record $107.0 billion, up 11%; merchant processing volume of $185.9 billion, up 14%

    • Corporate & Investment Bank maintained its #1 ranking for Global Investment Banking fees; client deposits were $386.0 billion, up 10%; assets under custody were a record $19.7 trillion
    • Asset Management achieved its eighteenth consecutive quarter of positive net long-term client flows, with $19 billion for the third quarter; client assets were $2.2 trillion, up 11%; loan balances were a record $90.5 billion
  • Third-quarter results included the following significant items
    • $9.15 billion pretax expense; $7.20 billion after-tax ($1.85 per share after-tax decrease in earnings) for legal expense in Corporate, including reserves for litigation and regulatory proceedings
    • $1.60 billion pretax benefit; $992 million after-tax ($0.26 per share after-tax increase in earnings) from reduced reserves in Consumer & Community Banking
  • Fortress balance sheet remains strong
    • Basel I Tier 1 common1 of $145 billion, and ratio of 10.5%
    • Estimated Basel III Tier 1 common1,3 ratio of 9.3%
    • Estimated Firm supplementary leverage ratio (“SLR”) of 4.7%
    • As planned, resubmitted our capital plan to the Federal Reserve and expect to receive feedback by year-end
  • JPMorgan Chase supported consumers, businesses and our communities
    • $1.6 trillion of credit1 provided and capital raised in the first nine months of 2013
      • $221 billion of credit1 provided for consumers; originated more than 700,000 mortgages
      • $14 billion of credit1 provided for U.S. small businesses
      • $442 billion of credit1 provided for corporations
      • $829 billion of capital raised for clients
      • $59 billion of credit1 provided and capital raised for nonprofit and government entities, including states, municipalities, hospitals and universities
  • Hired more than 6,000 U.S. veterans and service members since the beginning of 2011
  • Ended the quarter with over 5,600 branches, 32.9 million active online customers and over 1,900 Chase Private Client locations

New York, October 11, 2013 - JPMorgan Chase & Co. (NYSE: JPM) today reported net loss of $0.4 billion for the third quarter of 2013, compared with net income of $5.7 billion in the third quarter of 2012. Earnings per share were $(0.17), compared with $1.40 in the third quarter of 2012. Revenue1 for the quarter was $23.9 billion, compared with $25.9 billion in the prior year. The Firm’s return on tangible common equity1 for the third quarter of 2013 was (2)%, compared with 16% in the prior year.

Third-quarter results included legal expense in Corporate of $9.2 billion ($7.2 billion after-tax), and a benefit from reserve releases of $1.6 billion ($992 million after-tax). Excluding these items, third-quarter net income would have been $5.8 billion, or $1.42 per share1.

Jamie Dimon, Chairman and Chief Executive Officer, commented on the Company’s results: “While we had strong underlying performance across the businesses, unfortunately, the quarter was marred by large legal expense. We continuously evaluate our legal reserves, but in this highly charged and unpredictable environment, with escalating demands and penalties from multiple government agencies, we thought it was prudent to significantly strengthen them. While we expect our litigation costs should abate and normalize over time, they may continue to be volatile over the next several quarters.”

Dimon continued: “The Board continues to seek a fair and reasonable settlement with the government on mortgage-related issues – and one that recognizes the extraordinary circumstances of the Bear Stearns and Washington Mutual transactions, which were undertaken at the request or encouragement of the U.S. Government.”

Commenting on the business performance, Dimon continued: “We maintained our #1 ranking in Global Investment Banking fees and our unparalleled capital raising and advisory capabilities led to ground-breaking transactions and market share gains. Equity Markets revenue was up 20%, driven by broad-based strength across products. In Consumer Banking and Credit Card, our customer satisfaction scores continue to rise and our customer attrition remains low. For the second consecutive year, we led the nation in deposit growth – up 10% from the prior year – more than twice the industry average. Credit card sales volume was a record $107.0 billion, up 11%, and general purpose credit card sales volume growth has outperformed the industry for 22 consecutive quarters. Asset Management continued to have strong performance, with $19 billion of net long-term client flows, the 18th consecutive quarter of positive net long-term client flows. We are seeing continued positive trends in consumer and stability in wholesale – loss rates in mortgage are improving steadily as delinquencies continue to decline, and credit card delinquencies are at 20-year lows across the industry.”

Dimon concluded: “We continue our intense focus on our legal, control, and regulatory agenda – we are simplifying our business and making unprecedented investments in controls, which will make our company better and stronger for the long-run. We are extremely gratified that, in light of the issues the Company is facing, our people continue to do an unwavering and excellent job in serving their clients and communities, which you see in the underlying performance of our businesses.”

 


Article printed from InvestorPlace Media, http://investorplace.com/2013/10/jpmorgan-beats-expectations-but-reports-a-mountain-of-legal-costs-jpm-jpm/.

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